Twenty five years ago Guy Routh published a book entitled ‘Economics: An Alternative Text’, proposing the outrageous idea that economic theory should be based on observation and an understanding of how things work. He quotes Richard Jones “if you want to find out how the world works, you must look and see.” This approach was, and is, completely outrageous; that’s not how economic theory works. And it is economic theory by which we are all ruled. Orthodox theory is based on the statement of axioms, ‘plucked from the air’, from which logical, usually mathematically calculable, deductions are made. The fact they bear no relation to the real world is of little importance to the ‘madmen in their ivory towers’.
The madmen don’t explicitly apply theory to real world situations. But their efforts permeate the consciousness of those who do carry that responsibility. Changing that consciousness is a slow and difficult process. Routh was writing before the laissez faire orthodoxy had become wholly re-established under the guidance of Hayek and Friedman. It may then have seemed the Keynesian mainstream was to be replaced with a more empirical and inductive approach which took account of economic realities. Routh laid no claim to originality in his critique, but was able to invoke many leading figures to his side: Sismondi, William Thompson, Hodgskin, Marx, Richard Jones, Whewell, T E Cliffe Leslie, J K Ingram, W Bagehot, H Sidgwick, T Veblen, W C Mitchell, J H Clapham, P Sraffa, J M Keynes, K Boulding, W Leontif, E H Phelps Brown, G D N Worswick, Joan Robinson, J K Galbraith and others.
The critique of orthodoxy was expressed by Sismondi saying a hundred and seventy years ago, that economics was even then ‘losing itself in abstractions,’ or as Routh put it: ‘By the spell of their own theory, economists were incapacitated from understanding what was going on.” But, despite the heavyweight critique, the new model that was being ushered in, as Routh wrote, was even less attentive to the real world, and more deductive and abstract than anything which had gone before.
Now, twenty five years on, we may be hoping, as Routh did, for the thrust of economics to become more based on looking and seeing, rather than high flown theory. Free market fundamentalist dogma may at last be taking its place in the history of economic ideas, being replaced by something more closely based on practical experience and common sense.